What legal or administrative limits exist on how IRS enforcement resources may be allocated to audit taxpayers under $400,000?
Executive summary
The principal constraint on using new IRS enforcement resources to audit taxpayers with incomes below $400,000 is an administrative Treasury Department directive — not a law — instructing the IRS to keep audit rates for those taxpayers no higher than “historical” levels (tax year 2018 is the chosen benchmark); the directive establishes policy guidance but contains practical measurement and implementation gaps that TIGTA and others have repeatedly flagged [1] [2]. Congress considered, but did not enact, a statutory prohibition on using Inflation Reduction Act funds to audit below-$400K taxpayers, so the pledge rests on executive enforcement design rather than a binding congressional limit [3] [4].
1. The nature of the limit: an administrative pledge, not a legal ban
The $400,000 protection originated in a Treasury directive and public pledges by administration officials that audit rates for households and small businesses with "total positive income" up to $400,000 would not rise above historical norms, which the IRS has tentatively anchored to tax year 2018; that is guidance, not a statutory restraint on how funds may be spent [1] [5]. Legislative attempts to convert the pledge into law — notably Sen. Crapo’s amendment to bar use of IRA funds to audit taxpayers under $400,000 — failed, leaving no congressional prohibition that would legally prevent reallocating enforcement resources [3] [6].
2. How the IRS plans to measure compliance — and why that’s contentious
Officials said the IRS would benchmark future audit rates to 2018 audit coverage for taxpayers below $400,000, and defined the threshold in some communications as "total positive income," meaning income before losses and deductions; however, the agency has not finalized a robust methodology to count audits against that ceiling and has debated which data sources to use, creating uncertainty about enforceability [1] [7] [8]. The Treasury Inspector General for Tax Administration (TIGTA) has criticized the IRS’s analytic choices and warned the agency has made only "limited progress" developing a reliable method for calculating whether enforcement funded by the IRA increases audits below the threshold [2] [9].
3. Practical limits and loopholes in counting enforcement actions
Even with the directive in place, IRS proposals and internal practices create exceptions that could allow expanded scrutiny without technically breaching the pledge: the agency at points considered excluding certain examination types from the metric or waiving examinations if taxpayers appeared to understate income to game the $400,000 cutoff, and it resists using some raw data sources TIGTA recommended for fear of anomalies [2] [8]. TIGTA also flagged unresolved issues like the marriage‑penalty effect of “total positive income” and whether post-audit adjustments should be counted toward the income metric — gaps that functionally weaken the administrative limit [9] [2].
4. Political and analytical disagreement about effects and enforcement priorities
Republican critics and some watchdogs argue the directive is toothless and that the IRA’s funding inevitably increases audits of households below $400,000, citing CBO estimates and historical audit patterns showing significant additional recommended tax from lower‑income audits; Democrats and IRS officials counter that new resources are focused on high‑income noncompliance and that the directive guides allocation to prioritize the wealthy and complex returns [4] [10] [5]. The National Taxpayer Advocate warned that an overstated assurance of zero audits risks creating public misunderstanding that could encourage noncompliance, highlighting a tension between political messaging and enforcement realities [11].
5. Bottom line: administrative guardrails exist but are limited and imperfect
The only direct limit on allocating IRA-funded enforcement away from taxpayers under $400,000 is an administrative pledge anchored to a 2018 baseline and defined in guidance as applying to "total positive income"; it is not legally binding and remains operationally fragile because the IRS has not settled measurement methods and has considered exclusions that would reduce the apparent audit rate [1] [2]. The situation leaves the pledge subject to interpretation, implementation choices, and political pressure — meaning enforcement resources can be directed toward higher incomes in intent, but the agency lacks a watertight, enforceable barrier preventing some increases in audits or other enforcement activities affecting taxpayers below $400,000 [8] [9].